Following over five years of litigation, the U.S. Court of Appeals for the Sixth Circuit in B&H Medical, LLC v. ABP Administration, Inc. rejected a claim by plaintiff B&H Medical LLC (B&H) that a contract between Blue Cross Blue Shield of Michigan (BCBSM), a non-party, and defendant Wright & Filippis, Inc. (W&F) violated the Sherman Act. The court also sustained over $84,500 in sanctions against B&H’s attorney and ordered B&H and its attorney to pay $10,000 to W&F toward the costs of defending the appeal.

At issue was an agreement between BCBSM and W&F that began in 1992 and established an exclusive network of preferred providers to supply durable medical equipment (DME) and prosthetics and orthotics (P&O) to enrollees in certain health benefits plans offered to Chrysler Corp. employees and retirees and later to certain employees and retirees of Ford Motor Co., as well as participants in the Michigan Public School Employees Retirement System. B&H applied to join the network in 2002 but was rejected. On September 10, 2002, it filed a lawsuit alleging that the network was an illegal exclusive dealing arrangement that barred B&H from competing in the sale and lease of durable medical equipment and, therefore, violated the Sherman Act.

In October 2004, the U.S. District Court for the Eastern District of Michigan issued an opinion and order granting W&F’s motion for summary judgment for several reasons, including B&H’s failure to establish that the alleged exclusive dealing arrangement foreclosed competition in a substantial share of the relevant market or that “competition as a whole has suffered.” See B&H Medical, L.L.C. v. ABP Admin., Inc., No. 02-73615 (E.D. Mich. Oct. 29, 2004) (opinion and order granting defendant’s motion for summary judgment). In January 2005, the district court also issued an opinion and order granting sanctions against the plaintiff’s attorney under Rule 11 of the Federal Rules of Civil Procedure for “failing to dismiss this case when a lengthy discovery period failed to disclose any support for the antitrust claims asserted in the complaint.” See B&H Med., L.L.C. v. ABP Admin., Inc., 354 F.Supp.2d 746, 748 (E.D. Mich. 2005). The court later set the amount of these sanctions at $84,512.11. See B&H Medical, L.L.C. v. ABP Admin., Inc., No. 02-73615 (E.D. Mich. Jan. 13, 2006).

The Sixth Circuit confirmed this ruling, including the award of Rule 11 sanctions, in an opinion issued on May 7, 2008. The Circuit Court Judge, Karen Nelson Moore, held that the record demonstrates that “B&H’s antitrust claims lack any conceivable merit and this had been apparent for some time.” Specifically, the Court found the following “fatal defects” in B&H’s Sherman Act claims:

  • Lack of evidence supporting that the exclusive network would have allowed W&F to foreclose a substantial portion of the market for DME/P&O in Michigan. The court held that the competition foreclosed by an exclusive dealing arrangement must be “a substantial share of the relevant market” to violate the Sherman Act. The court found that the alleged exclusive dealing arrangement in this case foreclosed access to less than 13 percent of the relevant market and, therefore, did not violate the Sherman Act.
  • Lack of evidence demonstrating an injury to competition establishing B&H’s antitrust standing. The court held that there must be evidence that competition as a whole has suffered as a result of the alleged exclusive dealing arrangement. The court found that B&H simply ignored this issue in its opening brief.

In addition, the court found that the plaintiff’s failure to address on appeal the fundamental issue raised by the district court deserved appellate sanctions pursuant to Rule 38 of the Federal Rules of Appellate Procedure. On July 25, 2008, the court issued an opinion ordering B&H and its attorney to pay $10,000 toward W&F’s costs in defending the appeal.

Exclusive dealing arrangements are presumptively legal under the antitrust laws. Unless there is evidence of substantial foreclosure of the relevant market and proof of injury to competition as a whole, challenges to such arrangements are unlikely to be upheld by federal courts.